Alibaba seeks to conquer Southeast Asia, takes $1b stake in Rocket Internet’s Lazada

Jack Ma is the founder and chairman of Alibaba. Photo credit: Alibaba

China’s ecommerce market is arguably the most developed in the world – it’s larger than Western markets US and Europe. With not much space for growing market shares, the game in China has long been over. And who knows this better than China’s ecommerce giant Alibaba? That’s why the company owned by billionaire Jack Ma is moving into the next ecommerce gold rush: Southeast Asia.

Lazada operates in Singapore, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.

Alibaba announced today it has agreed to buy a US$1 billion controlling stake in Lazada, the largest online department store that’s billed as Alibaba’s and Amazon’s counterpart in Southeast Asia. Lazada sells a wide range of products – from clothing to consumer electronics – in Singapore, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.

In a statement, Alibaba said the investment consists of US$500 million worth of newly issued equity by Lazada and some shares from existing investors – for a total of US$1 billion.

The transaction values Lazada at US$1.5 billion, said its founder Rocket Internet in a separate statement. Apart from the Berlin-based startup factory, Lazada investors Tesco and Kinnevik Investment are selling some of their shares to Alibaba.

Basically the deal makes it easier for Alibaba to further expand overseas and hit its goal of getting at least half of its revenue there. Southeast Asia holds a huge potential, with its rising middle class and growing smartphone usage and internet adoption. More and more people are shopping online.

The region is also a tough nut to crack – with each country having its own nuances – so having a partner who understands and navigates it well gives Alibaba a legup.

“With the investment in Lazada, Alibaba gains access to a platform with a large and growing consumer base outside China, a proven management team, and a solid foundation for future growth in one of the most promising regions for ecommerce globally,” Alibaba president Michael Evans said.

“Southeast Asia is an attractive mobile-driven consumer market that is highly fragmented and diverse with significant barriers to entry and a nascent modern retail sector that has large headroom for growth,” added Max Bittner, CEO of Lazada Group. “The transaction will help us to accelerate our goal to provide the 560 million consumers in the region access to the broadest and most unique assortment of products. Furthermore, leveraging Alibaba’s unique knowhow and technology will allow us to rapidly improve our services and provide an even more effortless shopping and selling experience.”

Alibaba’s Taobao marketplace is the top online store in China. Alibaba also runs the second largest store, called Tmall.

The deal includes a provision for Alibaba to acquire much of the rest of the Lazada stake “at fair market value during the 12 to 18 month period after the closing of the transaction.”

Rocket’s press release pointed out that the company still has an 8.8 percent diluted stake in Lazada after the deal. It has made a 15-fold return on its US$20.5 million investment in Lazada.